Leaving SURS/Terminating Employment – Traditional/Portable

Leaving SURS/Terminating Employment – Traditional/Portable

Although you may intend to stay with a SURS-covered employer until retirement, the time may come when your personal situation prevents you from doing so. The following are your options should you leave the system entirely:

Leave funds on file: You may elect to leave your funds on file. You may elect to take a distribution at a later date; however, a distribution must be made to you by the April 1st following the year you reach age 70 ½ if you are not employed with SURS or a State of Illinois reciprocal system at that time.

Apply for a retirement benefit: If you meet the age and service requirements for a retirement benefit, you may apply for retirement benefits upon termination of employment. If you have not met the age requirement, you may leave your funds on file until you become eligible for retirement benefits. You must begin the annuity by the April 1st following the year you reach 70 ½ if you are not employed with SURS or a State of Illinois reciprocal system at that time.

Receive a separation refund: You may receive a one-time lump sum distribution. No partial distributions are allowed. You may only receive one refund per academic year. By accepting a separation refund, your claim to future benefits will be forfeited.

You may elect to receive your refund as a lump sum paid directly to you.

If your refund is less than $200, SURS is not required to withhold any federal income tax. However, if you wish to have federal income tax withheld, SURS will withhold a minimum of 5%, or a higher percentage of your choice.

If your refund is $200 or more, SURS is required by law to withhold a minimum of 20% for federal income tax.

Your refund is subject to an IRS 10% early withdrawal penalty unless:

You are over age 59 ½;

You terminated employment after age 55;

You have medical expenses large enough to be deducted on Form1040, Schedule A; or

You are a public safety employee who terminated employment after age 50.

Note: The 10% penalty is not withheld by SURS. It is calculated on IRS Form 5329 to be filed with your federal tax return for the tax year in which your refund is paid.

You may defer taxation by rolling the taxable portion of your refund directly from SURS to an IRA, a qualified 401(a) retirement plan, a 403(b) plan, or a Governmental 457 plan. If you arrange a trustee-to-trustee transfer, there will be no federal income tax withheld. Most rollovers are not subject to federal income tax. However, they are subject to taxation, according to IRS regulations, at the time of withdrawal. Rollovers to Roth IRAs are taxable at the time of the rollover.

You should consult a tax advisor with questions regarding a rollover or taxation of your separation refund.

You will receive a 1099-R to file with your federal tax return the January following the tax year in which your refund is paid. Your refund is not subject to State of Illinois income tax.

To receive a separation refund, you must have terminated your employment from all SURS-covered employers or you must have been on layoff for over 120 days. If you wish to withdraw your funds from SURS, you must complete an Application for Separation Refund. Depending upon your citizenship status, you may also be required to submit an IRS Form W-9 or W-8BEN.

To obtain the required SURS paperwork:

Dial Toll Free: 800-275-7877

Dial Direct: 217-378-8800

When you call to initiate the refund process, you will also need to provide the SURS representative with the following information:

Your name and Member ID number

Date of termination of employment

Whether you wish to have the funds paid directly to you or rolled to an eligible retirement account. If you wish to have the funds sent to a financial institution, you must provide SURS with the following information regarding the financial institution:

Name

Address

Account Type

Account Number

ACH Routing Number (checking and savings accounts only)

An Application for Separation Refund will be mailed to you containing the information you supplied to the SURS representative. Upon receipt, you should verify that all information is accurate, include any additional required documents, sign the form, have it notarized, and return it to SURS within 45 days.

In addition to the refund application and any other applicable forms, SURS will request specific information from your employer. To complete the refund processing, your employer must submit the certification of your employment, the date of termination of employment, and all final payroll information if not already on file.

You should contact your employer to determine their resignation process and complete any required paperwork.

Average Processing Time is currently 45-60 days from the receipt of all information.

Delays in Finalizing Separation Refund Claims: Your separation refund will be processed once SURS receives all information from you and your employer. There are several reasons why a claim may not be finalized within the average processing time. The following are the most common:

Receipt of employer information: The response time of your former employer affects the processing time required to finalize your claim. If the information reported by your employer is inconsistent with the information SURS has on file, SURS will contact the employer for clarification.

Response from member: If SURS requests additional information or paperwork from you, it must be submitted before your separation refund can be processed.

30-Day Waiting Period: 30 days must past from your last SURS-covered payroll before the refund will be processed.

For your convenience, you may apply by phone by contacting SURS toll free at 800-275-7877 or dial direct at 378-8800. You will speak to a SURS Benefits Counselor who will be happy to assist you in initiating the refund application process. For more details, download the Separation Refund Fact Sheet.

Your refund is a return of your contributions and includes interest credited, but not in excess of 4.5%. Any interest previously credited to your account in excess of that amount will be forfeited.

If you are in the Portable plan and have fulfilled all the portable eligibility requirements:

If you have less than five years of qualified service credit, you will receive all of your contributions plus the full interest that has accumulated on those contributions.

If you have five or more years of qualified service credit, you will receive all your contributions and the full interest that has accumulated on those contributions, plus an equal match from the employer (the State of Illinois).

Am I required to take a Separation Refund if I terminate my employment?

No, you may leave your funds with SURS. However, if you are terminated with all SURS-covered employers and all Illinois Retirement Reciprocal Systems upon the April 1st following the year you attain age 70½, SURS is required to distribute your funds, based on IRS guidelines. This payment must be made to you, either as a lump sum distribution or a monthly annuity, whichever you qualify for, with federal income tax withheld.

SURS will request a certification of employment, date of termination, and last payroll information from your employer, if not already on file. It is SURS policy to process refunds no sooner than 30 days after the last payroll is received in order to ensure that all contributions will be refunded. Therefore, our average processing time for Separation Refunds is 60 days from the date all required information is received in our office.

Can I take a partial Separation Refund or borrow from my SURS account?

No. If you are an active employee, you cannot access your account in either of these ways. If you have terminated your employment, you may take a Separation Refund, but it will be for the full eligible refund amount.

Can I "roll over" my Separation Refund?

Yes, all or part of the payment that you will receive from your SURS account may be eligible for rollover by you or your Plan Administrator to a Traditional IRA or other eligible employer plan. For more information regarding rollovers, please visit the IRS website (www.irs.gov) or view the Special Tax Notice on this website.

What does "vesting" mean in relation to my Separation Refund?

You are entitled to (vested in) a SURS retirement annuity if you have been credited with the minimum number of service credit years required for vesting.

If you first began participation prior to January 1, 2011, you are vested with at least five years of service credit.

If you first began participation on or after January 1, 2011, you are vested with at least ten years of service credit.

By accepting a separation refund, your claim to these future benefits is forfeited. You should contact SURS for specific information regarding the retirement annuity and the date it can begin. If you have at least one year of service credit with another Illinois retirement system (even if you have less SURS service credit than is required for you to be vested for a SURS retirement annuity), it may still be to your advantage to leave your funds on deposit with SURS and retire under the Reciprocal Act. For further information, contact SURS.

Is a Separation Refund taxable?

It is likely that all or a portion of your separation refund will be taxable. SURS is required by the IRS to withhold federal income tax on cash distributions of $200.00 or more.In addition, if you have not yet attained the age of 59½, or you are less than age 55 at termination date, your refund may be subject to an IRS early distribution tax of 10% of the taxable portion. The 10% tax is not withheld by SURS. The tax is calculated on Form 5329, to be filed with your federal tax return for the tax year in which you receive your refund. For more detailed information, visit the IRS website or view the Special Tax Notice on this website.

If you take a Separation Refund and then return to become an active member of SURS or a reciprocal system, you may reinstate your service credit after contributing for at least two years. You will need to repay the amount of your refund plus interest.